AMD, the chipmaker that once seemed on the brink of challenging the Intel powerhouse, today announced that it had spun off its manufacturing operations in an $8.4 billion deal with Abu Dhabi's Advanced Technology Investment Company.

Abu Dhabi's state-owned investment arm, the Mubadala Investment Company, will invest $314 million to double its stake to 19 percent of AMD, whose microprocessor advances pushed Intel to innovate more quickly.

The deal will turn AMD into a pure chip design firm or a "fabless" semiconductor company, while its former manufacturing arm will become a separate entity temporarily named "The Foundry Company." AMD will own 44 percent of the new company, while ATIC will own the rest. ATIC will pay $2.1 billion for a stake in the new entity and commits to investing $3.6 billion to $6 billion over the next five years to increase manufacturing capacity.

The deal was announced by AMD CEO Dirk Meyer, who took over the job in July. AMD has been talking for some time of spinning off its manufacturing arm because of the high costs associated with developing new technologies. "With The Foundry Company, AMD has developed an innovative way to focus our efforts on design while maintaining access to the leading-edge manufacturing technologies that our business needs without the required capital-intensive investments of semiconductor manufacturing," Meyer said in a statement.

AMD senior VP Doug Grose, will become the CEO of The Foundry Company and AMD chairman and former CEO Hector Ruiz will move over to the same role in the new company as well.

AMD has been locked in a  difficult battle with Intel, which has greater scale and manufacturing capacity. The No. 2 microprocessor maker has also recorded a series of losing quarters, including a $1.19 billion loss in its second quarter. In the last year, AMD's share price has dropped from $14.73 to around $4. It opened at $5.30 Tuesday, up more than 25 percent.